Final answer:
A premium bond is a bond that is priced higher than its face value, offering a higher coupon rate than market rates. Based on the change in interest rates, you would expect to pay less than $10,000 for the bond.
Step-by-step explanation:
A premium bond is a bond that is priced higher than its face value. It offers a coupon rate that is higher than the prevailing market interest rates. Premium bonds are attractive to investors because they provide a higher yield compared to other bonds in the market.
For example, if a bond has a face value of $1,000 and a coupon rate of 8%, but the prevailing market interest rates rise to 12%, the bond becomes less attractive to investors. To make the bond more enticing, the bond seller may lower its price below its face value, making it a premium bond.
Based on this information, we can infer that for a premium bond, you would expect to pay less than $10,000 for the bond.